First global ESG index focusing on China market to be launched soon

China’s International Institute of Green Finance (IIGF) published the world’s first global stock index that measures performance of the companies listed on China’s A-share market, based on their “Environmental, Social, and Corporate Governance (ESG)” contributions.

The index was jointly developed by STOXX, a unit of German index provider Qontigo, and Chinese think tank IIGF, as global investors jump on the green bandwagon.

The index will debut by the end of the year.

“We recognize the very important role China plays in sustainable investing globally. In collaboration with IIGF, we can provide quality ESG data from the local Chinese market embedded in our investment solutions to help our clients meet the growing demand of sustainable investing and reporting,” said Brian Rosenberg, the chief revenue officer of Qontigo.

The index, which will debut by the end of the year, tracks the ESG performance of 900 Chinese A-share listed companies. Its ESG analysis comprises both qualitative and quantitative indicators of ESG contribution, as well as the negative indicators arising from company behavior and risks.

It aims to optimize international investors’ sustainable investment by giving them a deeper view of the companies they evaluate in China.

The index not only helps in the rapid development of the green financing industry in the country, but more importantly, it provides a Chinese perspective to the global green financing market, as some pointed out that the international ESG market still does not have a clear China focus.

Last year, an article in the Financial Times reported how the world’s second-largest economy retained the worst ESG ratings of any major market, despite record fund inflows.

However, an expert pointed out that these issues arise due to current international ESG standards, which heavily weigh toward Western market principles, lacking local considerations.

“International ESG frameworks have many excellent indicators that we can learn from, but there is no clear understanding of the Chinese ESG requirements,” said Wang Yao, director general of the International Institute of Green Finance at the Central University of Finance and Economics.

Wang’s team has created a database for ESG risks of China’s listed companies. She gives an example of poverty alleviation, which is not included in the indicator “S” or social in the global ESG rating system, but retains an important part in the new index.

“As a think tank in China, we are more familiar with the performance of Chinese companies, so some of our indicators may not be applied universally, but they are suitable to the Chinese markets,” she added.

Investors are showing an increasing appetite for the sector, as China has taken major steps to promote sustainable investment in the country. Nearly 92 percent of China-based institutional investors plan to increase ESG-related investments this year, according to a survey conducted by American private investment bank Brown Brothers Harriman.

But experts think it will still be some time before a global consensus can be achieved on ESG parameters. Meanwhile, the key players, from investors to companies, still need some time to increase ESG awareness and translate it into real-world business operations.

 

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